School employees could get $50K in free life insurance

LAND O’ LAKES — Pasco County school employees could soon be eligible for a $50,000 life insurance policy that would cost them nothing and remain in effect even after they leave employment with the district, officials said.

The school district also would benefit from the policy at no cost, collecting $50,000 each time an employee dies, though that money by law would have to be used for employee benefits.

The policy would be bankrolled by wealthy investors who would put up $400 million in an arrangement that provides them with a tax shelter and a return on their investment while paying out money to the school district and to the employees’ beneficiaries.

“I’m definitely interested in pursuing this,” board member Joanne Hurley said Tuesday during a workshop at which the policy, which uses a financial strategy called “benefit stabilization funding,” was explained.

Board members could vote on establishing the insurance plan as soon as April 15, though it might take until the first board meeting in May before a proposal is ready because some details need to be worked out with United School Employees of Pasco County.

Ed Netherland, an insurance broker who explained the plan, acknowledged that a system that pays out money without any financial obligation on the part of the school district or its employees “sounds a little too good to be true.”

According to Netherland, here’s how it works: Usually, an insurance agreement has two parties, the insurance company and the person or persons insured. In this case, there is a third party to the arrangement, the investors who provide the capital to fund the program.

The motivation for those investors is they can avoid taxes while earning a return on their investment. Netherland said he is working with four wealthy New York families who would invest $100 million each. The names of those investors would be shared with the school board attorney for verification purposes but not made public.

That capital then generates cash flow for the district over the next 55 years, though just how much would depend on how many of the covered employees die each year. Based on actuarial statistics, the first year about 13 people would be expected to die, generating $650,000 for the district.

As time passes and the employees age, the number of annual deaths would work like a bell curve, initially increasing before decreasing again.

Only people employed with the school district at the time the policy is issued would be covered. The life insurance policy would pay out the money to their beneficiaries even if they no longer work for the district at the time of their deaths.

Officials said it’s possible the policies could be offered to new employees each year, but they would be in a different pool.

The district anticipated it might set up the life insurance benefit when it negotiated the current contract with the employees’ union, but at that time it was thought the payout to the beneficiaries would be $87,500 rather than $50,000, and the higher number was included in the contract. The district also was supposed to get $87,500 as its share.

Netherland said the amount was lowered because originally employees with some health issues would have been excluded, so only the healthiest workers would have been in the pool, reducing the risk. Under the plan now proposed, there is no medical qualification and everyone could be included, but that lowers the payout.

The fact that a specific number was in the contract remained a sticking point for union officials, though.

Kenny Blankenship, president-elect of the union, suggested the district could maintain the $87,500 figure for employees by taking a smaller cut for itself. That met with a resounding “no” from Superintendent Kurt Browning.

Board attorney Dennis Alfonso said the issue needs to be resolved before the board votes.

“I would have great concerns about telling the board to approve this plan if it’s going to result in a violation of our collective bargaining agreement,” he said.

Mark Pollock of Pollock Financial Group, the company making the proposal to the district, said one solution could be to offer the $87,500 payout through the end of the current contract, which expires June 30, then include the $50,000 figure in the new contract for 2014-15.

Also on Tuesday, the board postponed action on a proposal from Browning to hire a consulting firm to help develop a strategic plan for the district. Browning pulled from the board agenda the proposal to hire TransPro Consulting for $157,000, saying the plan will be discussed at a board workshop April 15, where any questions and concerns of board members can be addressed.

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